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Negotiators agreed on harmonised binding provisions for all member states. They ensured that borrowers are not worse off following the transfer of their credit agreement and member states will be able to maintain or introduce stricter rules in order to protect consumers.
Secondary markets for NPLs
The agreed measures foster the development of professional secondary markets for credit agreements originally issued by banks and qualified as non-performing. Third parties (credit purchasers) would be able to buy such NPLs across the EU. Credit purchasers (for example investment funds) are not creating new credit, but buying existing NPLs at their own risk. Therefore, they do not need special authorisation but will have to comply with borrower protection rules.
Supervised debt collection
Credit servicers are legal persons acting on behalf of credit purchasers and managing rights and obligations under a non-performing credit agreement such as payments collection or renegotiation of terms of the agreement. The EP negotiators made sure that they would have to obtain authorisation and be subject to supervision by the member states’ competent authorities. Member states should also ensure that there is a publicly accessible up-to-date list or a national register of all credit servicers. In order to protect consumers, all credit purchasers will have an obligation to have a credit servicer appointed by a host country for consumer portfolios. In addition, third country credit purchasers will also have to appoint a credit servicer for SMEs portfolios to protect entrepreneurs.
Protecting borrowers
The uniform level of protection for borrowers who cannot pay their debts, agreed during the negotiations requires credit purchasers and credit servicers to provide accurate information, respect and protect personal information and borrowers’ privacy and refrain from any harassment, coercion or undue influence.
In advance of the first debt collection, a borrower will also have the right to be notified in a clear and understandable manner on paper or another durable medium concerning any transfer of a creditor’s rights. The information should include a date of transfer, identification, contact details and authorisation of a new credit servicer or a credit service provider, as well as detailed information on the amounts due by the borrower. Additionally, the borrower should be informed where they can submit complaints.
MEPs ensured that borrowers should not be worse off following the transfer of their credit agreement. To this end, fees and penalties charged by servicers including transfer costs cannot change nor any additional costs be imposed other than related to this credit agreement. Furthermore, the contract and obligations between a credit servicer towards a credit purchaser should not be altered by outsourcing of credit servicing.
Finally, the negotiators agreed to take into account a borrower’s individual circumstances such as a mortgage linked to a residential property and ability to repay a loan while deciding on measures. Such measures may include partial refinancing of a credit agreement, modifying the terms of the agreement, extending the terms of the loan, currency conversions, and other ways to facilitate repayment. Member states may apply measures that work best for borrowers under national regimes but should have an appropriate set of measures at national level.
Quotes
Esther de Lange (EPP, NL), the co-rapporteur said: “It is a big relief that we can finally get on with the work to solve the challenge of non-performing loans held by the banks. The deal on Friday evening can help us prevent the economic downturn during the corona-crisis from turning into a new banking crisis. This directive will create a European secondary market for problematic loans and simultaneously make sure that the people who have taken out these loans are treated fairly.”
Irene Tinagli (S&D, IT), the ECON Chair and co-rapporteur said: “With this Directive we make clear that the development of a real, efficient and well-regulated European secondary market for NPLs must go hand in hand with all possible efforts by creditors to make credit performing again, and the highest possible level of protection for borrowers. This is even more important now when we are still bearing the consequences of the COVID-19 pandemic; we cannot risk the recovery being jeopardised by decisions that penalise households and firms”.
Background
Addressing any possible future accumulation of Non Performing Loans (NPLs) is essential to strengthening the Banking Union and ensuring competition in the banking sector, as well as maintaining financial stability and encouraging banks to lend so as to create jobs, stimulate growth, and support the post-COVID-19 recovery in the EU.
NPLs are commonly defined as loans that are either more than 90 days past due, or are unlikely to be fully repaid.
Next steps
Parliament, Council and Commission are now working on the technical aspects of the text. Thereafter, the agreement must be approved by the Economic and Monetary Affairs Committee and the Parliament as a whole.